The relationship between the Canadian treasury bill rate and expected inflation in Canada and in the United States

Nabil Khoury and Guy Melard

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: This paper investigates the relationship between treasury-bill rates and expected inflation rates in Canada and in the United States during the 1953–75 period. The tests are based on quarterly data and use two inflation-interest-rate models in which expected real returns on treasury bills are assumed either to be constant or to follow a random walk. The study indicates that treasury-bill rates in Canada have provided good assessments of expected inflation in the United States rather than in Canada during the entire period under study. This result is consistent with empirical evidence about the predominant influence of American monetary policy and interest-rate trends on Canadian monetary policy and interest-rate policy, and with the evidence about the efficiency of the United States treasury-bill market during most of the period under study.

Date: 1985-06
Note: FLWIN
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Published in: Canadian Journal of Administrative Sciences (1985) v.2 n° 1,p.63-76

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